The licence fee is a fetter on the BBC

The
creative and journalistic ambitions of the BBC are held back by its dogmatic
commitment to an ineffective and unethical funding mechanism. A subscription service
would release creative energy and allow the BBC to fulfil its commitment to public service broadcasting all the better.

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There
are two ways of approaching the issue of the licence fee: what is the best way
of funding the BBC in principle, and what is the best way in practice?

There
are four possible main sources of revenue for the BBC – the licence fee, a
government grant, advertising and subscription. These are all combinable with
each other.

In
addition, all public broadcasters attempt to emulate the BBC’s success in
generating revenue through the sale of rights and of content, and from
operating commercial businesses alongside its public service offering.

In
point of fact, the BBC is not currently purely financed by the licence fee. 30%
of its total income is earned by BBC Worldwide, though the net benefit of that
£1.5bn after expenses is only about £150 million. BBC Worldwide’s income
includes the BBC’s share of subscription and advertising revenue from commercial
channels, of which the largest proportion comes from the UK (where the BBC half
owns UKTV).

20%
of BBC income currently comes from government payments – £600 million for the
over-75s who are granted free licence fees, and £270 million from the Foreign
Office for World Service radio (though that will be paid for by the licence
fee from 2015).

There
are actually very few public broadcasters who rely almost exclusively on a
licence fee - just the Czech Republic’s and those in Scandinavia - and even that
situation is about to change.

Sweden
is mulling over a recommendation from an expert committee that, on grounds of
social fairness and efficiency, a surcharge on income tax should replace the
licence fee. Finland is implementing just that approach in 2013.

The
fee has been abandoned by Australia, New Zealand, the Netherlands, Hungary, Flemish
Belgium, Portugal, Singapore, Malta, Cyprus, Gibraltar, India, Malaysia and
Bulgaria. Countries which never had a licence fee include Spain, Luxembourg,
Latvia, Lithuania, Estonia, Liechtenstein, Andorra, Monaco and, of course, the
USA.

For
many of these countries, it was the disproportionate cost of collection which
led to dropping the licence fee. For others, it was the scale of evasion.
Countries which still have the licence fee include Italy (with a 40% evasion
rate), Poland (65%) and Serbia (45%).

Licence
fee levels vary greatly. The Scandinavians, Switzerland, Austria, Wallonia
in Belgium and Germany charge more – in some cases, much more – than the UK’s annual
£145-50. France and Italy are well below our level, but allow their public
broadcasters to take advertisements.

All
the smaller countries in Europe apart from Slovenia charge on average £40 a
year. To control costs and limit evasion, collection is through electricity or
phone bills in Greece, Turkey and Bosnia.

Why
does this matter? Because one of the arguments offered in support of the BBC
licence fee is one of principle: that there is a purity to licence fee funding
that cannot apply to other mechanisms.

What
is that purity? At least in the UK, there are no advertisements on BBC public
service channels: just on the commercial channels it part-owns and fully
controls in operating terms.

However,
many BBC programmes, even if they are not co-productions, like Blue Planet,
which had to be made to a commercial length of 50 minutes, even though
broadcast by the BBC in a 60-minute slot, are made with “natural breaks” and
shorter lengths than would be needed to fill BBC slots, so as to allow for
subsequent deployment on commercial channels.

When
it broadcasts these programmes, the BBC fills the gaps with advertisements for
itself: promotions.

The
second argument in terms of purity is that the licence fee allows the BBC to
concentrate on quality, not ratings. Sadly, the overwhelming evidence is that
the opposite applies. The BBC monitors audience share and reach very closely,
not least because it feels that any weakening of performance would put the
licence fee in jeopardy: a paradoxical result of licence fee funding.

In
parallel – the obverse side of that coin – the BBC concentrates on
populist output, most of which is indistinguishable from that of the commercial
sector. I estimate that 50% of radio output, and 90% of TV output lacks real
distinctiveness, let alone the independence of market share measures that the
purity of licence fee funding is meant to allow.

Of
course, the BBC continues to provide many excellent programmes – with £3.6
billion of annual licence fee revenue guaranteed, anything less would be
unforgiveable. But as even Mark Thompson, the most recent Director-General, has
observed, for the highest quality drama and comedy available on UK screens, one
has to rely upon US imports.

The
driving force of that higher quality has been the surge of spending by
subscription-funded US channels – some of which take no advertisements.

As
it happens, this has forced the advertising-funded networks in turn to raise
their game, but overall, the message from the US is very clear: writers,
producers and performers hugely value the true independence they are offered by
broadcasters who have no obligations to advertisers, or government-approved
levies, but are entirely answerable to their subscribers. Audience share is not
an issue for HBO or its many cable rivals.

The
other argument for licence fee purity is in terms of political independence. To
be any more dependent on government grants than it already is might undermine
the BBC’s ability to stand up to government.

Yet
we saw only two years ago that the licence fee offered no defence for the BBC
as a determined government forced the BBC to use the licence fee to fund a
range of government projects: the completion of digital switchover (including a
subsidy to Channel 4), World Service radio, S4C, BBC monitoring, broadband
rollout and local TV provided by third parties.

Does
the licence fee allow the BBC to ignore government pressure editorially? Not
long ago, the Director-General himself turned up at Downing Street to explain to
ministers and spin doctors the BBC’s plans for programmes on health service. Can
anyone imagine the boss of ITN doing such a thing?

The
truth is that the track record of UK commercial broadcasters in terms of
political independence is at least as strong as that of the BBC.

Channel
4 – almost entirely funded by advertising – is further evidence that public
ownership, public service output and editorial forthrightness are not dependent
on licence fee funding.

The
other argument of principle that attaches to the licence fee is that it gives
the BBC a moral purpose. In theory, that might be true, but in practice that
moral purpose is often very hard to find.

The
BBC prides itself on its six public purposes, but the truth is that the vast
majority of its TV output fulfils those purposes in the most nominal of
fashion. Yes, The Weakest Link is informative, as a former BBC executive
notoriously argued, but it is also a formulaic quiz – a schedule-filler that is
poor justification for a compulsory levy.

The
final two arguments of principle are two sides of the same coin. We all benefit
from the BBC, so we should all pay for it. Moreover, because the BBC – thanks
to the licence fee – is free at the point of use, the BBC can fulfil the
objective of universal availability.

Some
people may find these arguments persuasive, but I am afraid they strike me as
sophistic at best. As it happens, most people do indeed consume BBC output.
However, you do not have to pay for a licence to listen to BBC radio or click
onto BBC online. Moreover, the 1.5 million households that evade the licence
fee also have full access to BBC TV, just like the law-abiding households that
pay up.

As
for universality, ITV and Channel 4 are also free at the point of use: does
that give them a high moral purpose? And, of course, the BBC is absolutely no
different from Sky Television: once you have paid your licence fee or
subscription, you can consume as much as you like. Free at the point of use is
just a weasel phrase.

Another
weasel phrase is “good value for money”, as if anything can be so described
where you have absolutely no choice as to what you are paying (other than to
pay nothing and do without all television, not just BBC television).

In
any case, as I have demonstrated elsewhere on openDemocracy, the cost per hour
for viewing non-BBC programmes on Sky is lower than the cost of viewing BBC
programmes per hour, once you measure actual hours consumed and actual payments
made. And, of course, you cannot watch Sky until you have paid for the BBC.

Indeed,
the only universality is the compulsion to pay. The BBC is the only
organisation allowed to convert a civil debt into a criminal conviction, as
over 150,000 people find every year. The vast majority of these – as we know
from the magistrates who rubber-stamp their convictions – are too poor or
disorganised to manage full-year or even staged payments of the licence fee.

By
the way, the BBC is the only organisation that feels able to charge an extra £5
a year for payments by quarterly direct debit. Another BBC scam is to allow new
annual licences only to run to the last day of the month previous to the date
of the licence. If you took out a new licence on the 30th of the
month, you would pay for 12 months, but be legally covered for only eleven.

These
150,000 prosecutions constitute 30% of the non-indictable offences that crowd
our magistrates’ courts – a cost borne by the taxpayer, not the BBC. There is
no defence to a charge of non-payment if you have any equipment that can be
used to receive live television pictures.

That
definition includes laptops, tablets and mobile phones; though the BBC has not
yet steeled itself to prosecute anyone other than the owner of a television for
this offence.

The
money raised by these heartless prosecutions is trivial: it is just a policy of
punishing the vulnerable “pour encourager les autres” (though in point of fact,
18% of all households not paying by direct debit, and not having their licence
paid by the government, successfully evade paying the licence fee every year).

I
now understand that, to avoid the unwelcome burden of these prosecutions on the
court system, ministers are contemplating allowing the BBC to obtain a
conviction simply by presenting evidence of evasion, without any actual
hearing. Astonishing.

TV
Licensing – a wholly owned subsidiary of the BBC – sends out 23 million warning
letters a year to homes without a TV licence: letters of increasingly
threatening nature, which have been denounced as unacceptable by successive
chairmen of the Commons CMS Committee.

TV
Licensing also makes 3.5 million unannounced home visits every year, most of
which have no outcome other than to frighten or anger law-abiding people. I
find it hard to spot the high moral purpose in the machinery underpinning this
funding mechanism.

But
is there any alternative? This is the practical question. Advertising, except
at the margin, has been rejected by virtually every committee of inquiry, on
the grounds that any benefit to the BBC would severely damage
commercially-funded broadcasters, and eliminate any public service content they
currently provide. Nor is there any expectation of replacing the current level
of BBC income by that means.

Of
course, a government grant could easily fulfil that function, and would
certainly be more equitable than a flat-rate, regressive household tax.
Moreover, there has never been any doubt about the editorial independence of
the World Service, despite being wholly financed by the Foreign Office.

My
own view is that it would be preferable to replace the licence fee with
Treasury funding only to the extent that a pure public service broadcasting
fund be established, which would be contestable, in the sense of allowing all
broadcasters and producers to apply, including the BBC.

I
calculate that the VAT derived from switching the BBC to subscription funding - an entirely new revenue stream for the Treasury – would be sufficient to fund a
wide range of public service content, from a wide range of suppliers, including
no doubt the BBC for such offerings as Radio 3 and Radio 4.

It
is crucial not to lose sight of this key element in any proposal to replace the
licence fee: we need to fund directly the public service content the BBC
actually does produce, encourage others to enter this arena, and ensure that
the output is freely available.

Subscription
has been opposed by supporters of the licence fee for two reasons. The first is
that it allows people to avoid paying for the BBC altogether, if they so
choose. That way, they might end up losing out on valuable content.

Yet
the time when the man in Whitehall is assumed to know best is surely long past:
why should people be forced to pay for something that might be good for them,
when there is no mechanism to force them to view it?

In
any case, the bulk of what “might be good for them” will – under the subscription
mechanism I advocate – still be available for free, including all BBC radio, as
public service content will always be unencrypted, as will radio for the
foreseeable future.

The
second reason takes us back to practicality. Many studies have been provided –
some even funded by the BBC – to show that subscription would either leave the
BBC with lower income (implying a loss in consumer welfare amongst subscribers
compared with the present situation) or that prices would have to be set at a
level above the present licence fee (implying that subscribers would have to
pay more for the same, as well as excluding some who would have been happy to
continue at the level of the licence fee, but would now drop out – evidence, it
is claimed, of further welfare loss).

Sadly,
all these exercises were fruitless, either because they failed to reflect the
way in which subscription systems worked – with different options for viewers
at different prices – or because they missed the most important driver for
subscription revenues: the fact that the average number of TV sets per home is
nearly 3, and that under a subscription system each set that the householder
wanted enabled to receive BBC channels would need its own smart-card.

This
means that even though many households might choose – at least initially – to
do without BBC TV channels, the total number of subscriptions would almost
certainly exceed the current number of TV licences. This means that the cost to
a single-set household of keeping BBC1 and BBC2 could be as little as a half of
the current licence fee, that the full array of BBC channels could be provided
for about two-thirds of the current licence fee, and the BBC could even offer
premium channels – such as arts, sport and documentaries – to specialist audiences,
in addition to its existing generalist channels.

As
both Greg Dyke and John Birt have said in the past, the likelihood is that the
BBC would thrive under a subscription system, which would also have the major
side benefit of ending the prosecution of evaders (non-payers would simply not
be able to see BBC channels, unless these were showing unencrypted public
service content).

A
huge benefit of switching to subscription would be to end government
involvement in the way the BBC was funded, and create a basic model of
accountability – to consumers – to replace the artificial and unconvincing
structures that currently prevail.

The
prospect of joining the most dynamic of revenue mechanisms is all the more
important for the BBC, in that it otherwise faces, not just steady decline in
real-terms spending power as a result of its acquiescence in the coalition’s
licence fee policy, but even greater relative decline, as Sky ratchets up its
budget for UK origination – already out-running Channel 4, about to overtake
BBC2, and with both ITV and BBC1 in its sights.

The
truth about the licence fee’s success is little understood. Essentially, the
BBC has benefited from two extraordinary bursts of revenue dynamism – colour TV
and household growth – which have either completely or largely run out of
steam.

The
original radio BBC licence in 1922 had been ten shillings, which remained
unchanged for many years, with rapid take-up of wireless sets allowing the BBC
greatly to expand its income. Twenty five years later, the fee was still only
£1. In 1946, a television licence was introduced, at £2.

Both
fees were, of course, subscriptions – if you paid for a service, you could
legally receive it. There was no notion of universality; indeed, in many parts
of the UK, TV was not even available.

At
first, the costs of TV exceeded the revenues – BBC TV had to “borrow” money
from radio. But the launch of ITV in 1955 led to a surge in TV licence
revenues, relegating radio to junior status. By 1971, the costs of collecting a
separate radio licence were such that it was abandoned. Thereafter, radio would
be free, funded out of the TV licences that well over 90% of homes by then had
taken out.

Of
course, the deal whereby the BBC monopoly was broken also broke the
subscription link between the BBC and its customers. Now, the licence fee was required
to watch any TV, not just the BBC.

In
1968 came a huge advance: colour television. The colour TV premium was set at
£5, over and above the monochrome £6. That £11 total is roughly equivalent to
the current £145-50: index-linking has protected the value of the fee, but the
massive take-up of colour has generated revenue far exceeding the marginal
additional cost of broadcasting in colour.

In
the early 1970s, the combined revenues of ITV and Channel 4 had been double
those of the BBC. Today, the licence fee provides the BBC with twice as much
income as ITV and Channel 4 combined. This has enabled a huge expansion in TV, radio
and online services.

A
much less obvious contributor to the BBC’s remarkable growth has been a change
in the UK’s demographic structure. Natural population increase and immigration
have pushed the UK’s population to above the 60 million mark. But what has
helped the BBC has been the surge in single person households.

In
1961, there were 16.3 million households, with an average size of 3.1 persons.
By 2001, there were over 22 million, and the current figure is 25.5 million
households, with an average size of 2.4 persons.

The
proportion of single person households – all requiring a TV licence – has
soared from 12% to 29%: and this increase is almost entirely accounted for by
the 40-65 age range. The 50% rise in the number of households since 1961, with
the licence fee essentially index-linked, and no additional costs required to
reach the extra households, has been an enormous bonanza for the BBC.

But
that phenomenon has almost run its course. Average household size is unchanged
in a decade. At the same time, colour penetration is nearly 100%. There are
only 20,000 monochrome licences in issue, and the monochrome licence was
allowed to drop to one-third of a colour licence decades ago.

What
makes all this of even greater concern is that the coalition’s licence fee
settlement has carved 16% of spending power out of the BBC. The freeze on the
licence fee level until 2017 will further erode that spending power – for the
first time in the BBC’s 90-year life.

By
clinging to the licence fee, the BBC is not only shutting itself off from the
dynamism of the subscription market, but also from that market’s ability to add
on new products that imitate the colour and household phenomena of the past.
Sky and Virgin Media vigorously market high definition, 3-D, premium services,
video on demand and multi-room, all requiring additional fees.

Crucially,
converting to subscription would also allow the BBC to break free of the
inexorable dumbing-down effect of the licence fee, as audience fragmentation
forces a greater reliance on soaps in drama and so-called reality in factual
programmes.

The
essence of the subscription model – as HBO has shown – is the opposite of the
licence fee: emphasising the very highest quality, so as to command subscriber
loyalty.

For
HBO, it doesn’t matter how much or little time a subscriber spends watching its
service, as long as there is at least one programme which triggers a renewal of
the monthly fee.

In
the final analysis, the point of subscription funding is not just to end the
persecution of the poorest, let alone to introduce some market mechanism just
for the sake of it. The essential objective is to stimulate creativity and
excellence, to appeal strongly to audiences rather than weakly, to motivate
writers and performers and producers to aim high, and supplying the necessary
budgets to achieve their objectives.

A
funding mechanism that encourages the production of better and better
programmes from the BBC; one which attaches itself to dynamic revenue streams; freedom
from government interference in setting the BBC’s income; restoration of choice
for that minority which either cannot afford the licence fee, or prefers to do
without BBC TV; a guaranteed public service fund to which a full range of
broadcasters and producers can apply; continued availability of all the BBC’s
actual public service content, without any individual obligation to pay for it:
that is the prospect opened up by subscription.

Keeping
a mechanism which is crude, which provides flat (if not declining) revenue,
which is unfair and meanly enforced, and which incentivizes the BBC
progressively to dumb down its output, seems a poor alternative.

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